IPhone Scarcity During Chinese New Year May Give Samsung a Happy Holiday

By Bloomberg News -
Jan 19, 2012

Apple Inc. (AAPL) is missing out on Chinese
New Year sales and giving competitors a potential boost after
pulling all iPhones from company stores during the nation’s most
important gift-giving season.

Apple stopped selling all handsets at its five China
outlets on Jan. 13 after customers pelted the flagship store in
Beijing with eggs because it wouldn’t open on the first day of
sales for the iPhone 4S. The online store in China also sold out
of the device.

The one-week holiday, which begins Jan. 23, generated $64
billion in retail sales last year, according to government
statistics. Clearing iPhones from shelves in the 10 days leading
into the Year of the Dragon may help Samsung Electronics Co. (005930) and
other competitors using Google Inc.’s Android software increase
their footholds in the world’s largest mobile-phone market.

“A large portion of Chinese New Year sales are about
having the gifts in hand right now,” said David Wolf, chief
executive officer of Wolf Group Asia, a Beijing-based consulting
firm. “Android devices competitive with the iPhone will
benefit.”

Carolyn Wu, a Beijing-based spokeswoman for Apple, declined
to comment on the sales impact of removing iPhones from company
stores or say when the devices would return. The new model
remains available through carrier China Unicom (762) (Hong Kong) Ltd.
and authorized resellers.

Wang Yun and her husband drove more than an hour to the
Apple store in Beijing’s Xidan neighborhood, intending to buy an
iPhone 4 as a holiday present for themselves. Wang wanted to use
the FaceTime video-call feature to chat with friends in the U.S.

“No one told us Apple isn’t selling iPhones anymore, and
we drove all the way here,” said Wang, a 34-year-old
entrepreneur. “Now what are we supposed to do? It’s a long way
to come for nothing.”

Other sources are the dozen hawkers milling around outside,
haranguing shoppers with cries of “4S here!” and “Brother,
come on, buy one!” Negotiations start at 5,700 yuan ($902) for
a 4S handset they say is authentic.

Losing Share

That’s about 14 percent higher than the 4,988-yuan price
listed on Apple’s website for the sold-out handset.

The 4S debuted Jan. 13 at four of the five Apple stores in
China. Hundreds of people waited outside the Sanlitun district
outlet in freezing temperatures, and some started throwing eggs
when it was announced that the store wouldn’t open. Police had
to restore order.

Apple later announced it was halting phone sales at all
stores, saying the move was “for the time being” and intended
to “ensure the safety of our customers and employees.”

“Chinese New Year is the most important period for sales
promotions,” said Wang Ying, a Beijing-based researcher at
Analysys International. “The lack of supply will give
competitors an opportunity for sales.”

Cupertino, California-based Apple’s share of China’s
smartphone market dropped to 10.4 percent in the third quarter
from 13.3 percent the quarter before, while Samsung’s jumped to
19 percent from 15 percent in the same period, according to
Stamford, Connecticut-based research company Gartner Inc.

Permanent Loss

Apple sold 5.6 million iPhones in China during the first
nine months of last year, making it the No. 4 smartphone vendor
in China in the third quarter, according to Gartner. It trails
Nokia Oyj (NOK1V), Samsung, and Huawei Technologies Co., Gartner said.

Jason Kim, a Seoul-based spokesman for Samsung, declined to
comment.

“Most worrying is the potential loss of good will,” said
Teck Zhung Wong, a Beijing-based analyst with IDC China. “There
might be real demand permanently lost.”

Apple’s stores in China generate the highest traffic and
highest revenue of any of the company’s stores, on average,
Chief Financial Officer Peter Oppenheimer said in January 2011.

The maker of iMac computers and the iPad tablet increased
its revenue in China to $13 billion in the year ended Sept. 24,
from $3 billion a year earlier, Chief Executive Officer Tim Cook
said in October. China accounted for 16 percent of Apple’s
revenue in the fiscal fourth quarter, making it the company’s
biggest national market after the U.S.

‘Scary’ Events

The Sanlitun incident shows the need for Apple to rethink
its approach in the China market, said Duncan Clark, Beijing-
based chairman of BDA China, which advises technology companies.

“Headlines about scarcity of iPhones and customers camping
out, etc., have proven a highly effective marketing approach,”
Clark said. “Now events in China have crossed the line from
scarcity to just downright scary, both for Apple and the
government.”

Sherry Wu, a 19-year-old college student, went to the Xidan
neighborhood store with classmate Ada Li to buy the iPhone 4S.
After finding the shelves empty, they stood outside and debated
what to do.

Wu said she didn’t want to buy from a scalper for fear of
getting a fake, so she may ask a friend to bring her a device
from Apple’s Hong Kong store. Li then pulled out a Samsung
Galaxy handset she’s had for three months and suggested that as
an alternative.

“I like the Galaxy,” Li said. “It looks like an Apple
but it’s cheaper than the iPhone.”